SpaceX has just accomplished the largest IPO in history with shares surging more than 17% on debut. At the time of writing, it had just become the fifth most valuable traded company in the world.
The good news for any investors fretting about the sustainability of the AI-driven rally is that the market digesting an offering of this size bodes well for the potential upcoming IPOs of Anthropic and OpenAI.
Barring a negative catalyst of unknown origin, such as an AI-spending slowdown in the near term, the window is wide open for these to go public. And the US$75 billion in fresh cash SpaceX has just raised will likely help support the entire AI complex, allowing the music to continue playing (we have previously likened the AI hype to a game of musical chairs).
SpaceX valuation not reflection of overall AI sector health
That said, how much does it really tell us about whether AI stocks are or continue to be a good bet? Without breaking new ground, the SpaceX valuation on the mortal fundamentals is… high. The company turned over US$18.7 billion last year, with revenue estimated to reach US$34 billion this year and US$60 billion next, set against its current US$2.7 trillion price tag. Elon Musk, never one to shy away from a bold prediction, has said revenues might reach US$1 trillion by 2030, and that he would be surprised if they were not above that in 2031.
Some of us will not be surprised if Space X does not hit those numbers for two reasons. Firstly, it would require growth at a scale never seen before. NVIDIA, the standout of the AI boom, has grown its revenue around twentyfold over five years, and that pace, applied to SpaceX, would still leave it well short of Musk's number.
Secondly, the vast total addressable market (TAM) SpaceX lays claim to – some US$28.5 trillion according to its prospectus – is overwhelmingly AI driven. Only around US$370 billion of it is space; US$26.5 trillion is AI. The trouble is that the AI leg hinges on xAI, which many don’t yet see as a front-runner against the likes of Anthropic, OpenAI and Gemini.
Which is why the SpaceX valuation is, at heart, a Musk story, not an AI story. As we have seen with his previous ventures, investor faith in him is not in short supply and is what underwrites SpaceX for now.
Fractured tech sector
SpaceX, then, is its own kind of bet. The pipeline of subsequent listings and the AI complex this new capital supports ultimately depend on the durability of the AI spending spree. That is the dilemma we set out in our outlook for the second half of the year last week, and it has already fractured the technology sector.
On one side, the semiconductor complex has driven close to two-thirds of the year-to-date gain in the S&P 500. On the other, the so-called ‘SaaSpocalypse’ has dragged down much of software, and most of the free cash flow the hyperscalers once generated has gone with it.
AI capital expenditure is now set to consume more than 90% of their operating cash flows, pushing the next high in the group's free cash flow out to 2029. For example, Oracle, after more than 30 years of positive free cash flow, is now expected to post five negative years in a row. Investors would probably welcome a little spending discipline, though that would land squarely on semiconductor demand.
Figure 1. Hyperscaler (Microsoft, Amazon, Meta, Google, Oracle) cash flows and capital expenditure in US$ billions
Source: Bloomberg, as at 27 May 2026.
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But semiconductor valuations would leave little room for it. A sector that traded between two and four times sales for the fifteen years to 2020 now sits above 16 times, pricing in growth with no real precedent. Software is the harder call. It’s off its 2021 peak but still above its long-run norms. We expect that divergence to persist until the commercial returns from AI investment become clearer.
Until then, a quote usually attributed to John Maynard Keynes springs to mind: “markets can remain irrational longer than you can remain solvent.”
All data Bloomberg, unless otherwise stated.
Author: Dan Taylor, Deputy Head of Systematic, Man Group and CIO, Man Numeric.
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